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Time to invest in Korean reunification? I know a man who did

As the absurdly coiffed and probably deranged Kim Jong-Il fingers his nuclear button

25 October 2006

4:30 PM

25 October 2006

4:30 PM

As the absurdly coiffed and probably deranged Kim Jong-Il fingers his nuclear button, not even the ballsiest hedge fund manager would contemplate investing in the prospect of Korean reunification. But I could name one secretive London investor who took a big punt back in the 1980s, buying a bundle of North Korean government debt at a tiny percentage of its nominal value on the off-chance that it will one day be redeemed at par by a united Korean treasury. I guess he’s going to have to hold on for a few years yet.

It wasn’t such a mad idea, though. In the days when I was a regular visitor to Seoul, everyone I met there believed as an article of faith that the heavily militarised border along the 38th parallel would one day melt away. Kinship, cultural chauvinism and a long perspective largely outweighed fear of attack from the north, even though central Seoul regularly came to a halt for civil defence exercises. The peninsula had been divided before and always reunited, I was reminded, notably by the Silla kings in the 7th century and the Koryo dynasty in the 10th. Those of a more pragmatic outlook pointed out that the north’s assets — coal, iron ore, agricultural land, 23 million consumers — would make a potent combination with the south’s industrial strengths.

In the current stand-off, there has been little mention of reunification as a desirable outcome — either because China opposes the idea, or because it’s not worth talking about until Kim Jong-Il’s dissolute habits finally carry him off. As for trying to invest in it, let us recall the cautionary tale of Chung Mong-Hun, the head of South Korea’s Hyundai industrial group, who channelled $186 million through his companies into what he claimed were ‘development rights’ in the north. This turned out to have been a huge bribe to persuade Kim Jong-Il to participate in peace talks with his southern counterpart, Kim Dae-Jung, in Pyongyang in June 2000. The two presidents held hands in their shared limousine and gave voice to a joint declaration on movement towards reunification. Southern Kim collected a Nobel peace prize as a result, but soon afterwards northern Kim reactivated his nuclear programme and all bets were off. Chung Mong-Hun, accused of accounting fraud, threw himself from a 12th-floor window of Hyundai’s head office — and regrettably he wasn’t holding hands with Kim Jong-Il at the time.


Oddly enough — talking of Nobel prizes — it was Shriti Vadera who first introduced me to micro-credit. This is the technique of lending small sums to very poor people to help them climb the first rung of the economic ladder, for which the Bangladeshi economist Muhammad Yunus has won this year’s Peace Prize. Some years ago, Miss Vadera and I were participants in a conference on social issues; divided into groups, we were asked as a theoretical exercise to come up with ways of using £100,000 to alleviate as much poverty as possible. Her answer on behalf of our group, drawn from the example of Yunus’s Grameen Bank, was to make loans to women to buy sewing machines with which they could start making-and-mending businesses.

I attach ‘oddly enough’ to this recollection because Miss Vadera is nowadays best known as one of Gordon Brown’s innermost clique of Treasury policy-makers — she’s the one who allegedly put the boot into Railtrack without a shred of sympathy for its shareholders. And yet micro-credit is in many ways the very opposite of the Brownian philosophy: it seeks to turn the poor into responsible mini-capitalists, capable of improving their own economic status, rather than treating them, as Brown does, as patients of a vast clinic of state benefits and credits. Perhaps Shriti should pop into Gordon’s office and point out that Yunus’s method has so far helped 100 million people, whereas his own doesn’t seem to be doing much good for anyone. I expect she’s well used to being shouted at by him.

Poultry palace

The sale of an iconic British asset into foreign ownership has long since ceased to cause outrage. It looked inevitable that Corus, which included the remains of what used to be British Steel, would be swallowed up one day by consolidation in a fiercely competitive global industry. But steelworkers’ jobs are in reality no more at risk under the umbrella of Tata, the entrepreneurial Indian conglomerate, than they were under the Anglo–Dutch management of Corus.

The tide of cash coming in from Russia still raises eyebrows, however, and I was intrigued by another deal announced this week: the sale of the Grade I-listed, Lutyens-designed former Midland Bank headquarters at 27–35 Poultry, almost next door to the Bank of England, to Russia’s former deputy finance minister, Vladimir Chernukhin, for £72 million.

Though upstaged in recent years by the showy development opposite at No. 1 Poultry, Lutyens’s building is one of the world’s grandest temples of finance, from its green marble entrance hall to its vaulted penthouse boardroom. Built between 1924 and 1939, it marked an era when Midland was one of the world’s most powerful banks. It was commissioned by another ex-finance minister — the Midland chairman and former chancellor Reginald McKenna. It was the architect’s biggest commission in England, and he enhanced its exterior grandeur by optical illusion: to make it seem taller from what he called a ‘worm’s eye view’, he made the façade recede by an inch at intervals, and made each course of stone one eighth of an inch less in height than the course below.

David Kynaston, the City historian, described the result as ‘conveying a sense of immeasurable authority and the deepest of deep pockets’. Those attributes eventually ceased to apply to Midland, which disappeared into HSBC a decade ago. Now the building may become a luxury hotel and the deep pockets appear to belong to the little-known Mr Chernukhin — who is not yet 40, and who went on after his stint at the finance ministry to be chairman of the state-owned Vneshekonombank until he was relieved of his post in 2004, evidently for political reasons, by President Putin. Let’s hope there’s no optical illusion about his £72 million.

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